Private Placement Life Insurance (PPLI) is designed to be a long-term planning vehicle—one that combines insurance architecture with institutional-quality investment access in a tax-efficient wrapper.
The tax treatment has guardrails, and the most important is investor control: for a PPLI policy to receive its intended tax benefits, the policyowner cannot be treated as the "real owner" of the assets inside the separate account. If the policyowner effectively controls those assets, the IRS may disregard the insurance wrapper and impose current taxation on inside buildup.
The good news: sophisticated structures handle investor control cleanly every day. The discipline required is modest compared to the planning value delivered.
The challenge: investor control is a process issue, not just a documentation issue. And that's where many otherwise-strong teams create unnecessary risk.
This post explains how experienced advisors navigate investor control in practice—including the "prearranged plan" issue that has become the modern edge case.
Many PPLI structures look fine on paper. The policy says the carrier controls the separate account. The investment manager says they have discretion. The client says they're "hands off."
And then the pattern of communications tells a different story.
That's the lesson of Webber v. Commissioner (2015), where the Tax Court found investor control based on conduct—describing a "protocol" where the taxpayer's advisors served as intermediaries for investment decisions, backed by extensive email evidence.
The court looked at three practical "incidents of ownership":
The key point: You don't solve investor control risk with better language; you solve it with better governance.
Most experienced planners know investor control becomes an issue when a client is literally picking stocks or telling the manager what to buy.
But there's a subtler (and increasingly common) scenario that requires attention:
That's the "prearranged plan" pattern.
The IRS has repeatedly emphasized the importance of no arrangement, plan, contract, or agreement between the contract holder and the carrier/advisor regarding what specific assets will be held or how the manager will execute.
Why it matters: If the client and advisory team effectively design a PPLI policy as a delivery mechanism for a specific deal—especially one the client sourced, negotiated, or has a separate economic relationship with—the structure can drift from "allocating among investment options" into "directing the underlying assets."
And here's the nuance many teams miss:
A plan can be "prearranged" even without direct instructions. If the pattern of communications and outcomes shows the manager consistently and predictably following the client's "recommendations," investor control becomes a concern—regardless of what the paperwork says. ([Baker McKenzie][3])
This doesn't mean PPLI can't accommodate sophisticated or concentrated strategies. It means the process matters as much as the product.
A helpful framework for navigating this:
The distinction isn't about limiting client input—it's about where that input happens in the decision chain.
Sophisticated families can absolutely have strong investment views. The question is whether those views are expressed as:
The first is standard practice. The second creates investor control risk.
The most durable PPLI structures treat investor control as a design problem with three components: product, process, and communications.
Strong structures are built around investment options where the manager has real authority and the carrier has real oversight. That can include:
The key isn't the structure type—it's the governance.
An SMA with proper discretion and documented independence can be just as clean (and often more tax-efficient and customizable) as an IDF. Similarly, an IDF with weak manager oversight or client-specific customization can create the same risks as any other structure.
What matters: can you demonstrate that the manager operates independently, the carrier administers the platform actively, and the client's role is limited to allocation and strategic direction?
What strengthens the structure:
What creates risk:
The goal is to show that investment decisions happen within the insurance structure's governance, not as a pre-determined outcome.
This is where most accidental investor control happens—and where the solution is straightforward.
Best practice: separate strategic direction from specific implementation.
The client can (and should) communicate:
The client should not communicate:
The distinction protects everyone. It allows the client to maintain strategic intent while preserving the manager's discretion and the carrier's role.
This isn't "compliance hygiene"—it's structural protection. Especially in an environment where emails, texts, and documented communications are discoverable and reconstructable.
Here's the most common real-world scenario:
A family office says: "We want PPLI, and we also want Fund X inside the policy. We already invest in it personally. Can we include it in the separate account?"
How this can go wrong: The team treats the policy as a wrapper for a predetermined asset, builds the structure around that outcome, and creates a prearranged plan—even if no one ever uses the word "directive."
How sophisticated teams handle it:
The outcome might be the same (Fund X ends up in the account), but the process is defensible because the investment decision stayed with the manager, not the client.
PPLI has been under increased public and policy scrutiny in recent years, including explicit attention to investor control as a core guardrail concept in policy discussions.
The practical takeaway for planners:
The best time to build clean governance is before the policy is issued and before habits form. After that, you're trying to unwind patterns, communications, and expectations—with much more friction and much less flexibility.
The good news: these disciplines don't limit sophisticated investing. They channel it. The best PPLI structures give families access to institutional strategies they couldn't access otherwise, with insurance benefits that compound over decades.
Strong structure (low risk)
Watch zone (manageable with care)
High risk (restructure or avoid)
Investor control isn't a technical trap—it's a design discipline.
The distinction it protects is fundamental:
Most problems are avoidable when teams treat process and communications as part of the product—not as afterthoughts.
And the discipline required is modest: express preferences at the mandate level, let managers execute within their discretion, and keep the carrier's role substantive.
That's not a limitation—it's what makes the structure work.
